SB 21 repealed ACES. And now SB 21 will be subjected to a referendum calling for its repeal. We’ll vote on that in August. But in all of the glitzy, expensive advertising urging you to “Vote No on #1” there’s a buried theme: discredited, voodoo economics. It’s the long-discredited idea that if you lower taxes, the benefit to the economy will magically grow and somehow replace the lost tax revenue.
It used to be called “supply-side economics” and was the poster child for Reaganomics. The Reagan administration trumpeted that reducing the federal income tax burden on big business would cause a boom which, even at lower tax rates, would cause a surge in tax revenue that would shrink the national debt.
What happened instead was a huge increase in deficit spending. The nominal national debt rose from $900 billion to $2.8 trillion during President Reagan’s tenure, an average national budget deficit per year of $237.5 billion, as compared to an average national budget deficit per year of $56.9 billion during President Carter’s tenure. The federal deficit as percentage of GDP rose from 2.65% of GDP in 1980, President Carter’s final budget year, to 3.04% of GDP in 1988, President Reagan’s final budget year. Yes, overall economic conditions improved but it was a consequence of the biggest deficit spending since World War II, not the result of supply-side economics. Reaganomics was exposed as a sham. The only benefits from the tax cuts was decreased taxation of the wealthy.
But the disproved, failed doctrine didn’t die. As Paul Krugman recently documented, it was the basis for Kansas’s decision to slash taxes, without any plan for replacing the revenue. The outcome was so bad that Moody’s recently downgraded the State of Kansas’s credit rating. Krugman summarized,
There’s an important lesson here — but it’s not what you think. Yes, the Kansas debacle shows that tax cuts don’t have magical powers, but we already knew that. The real lesson from Kansas is the enduring power of bad ideas, as long as those ideas serve the interests of the right people.
Krugman demonstrates that Kansas’s disastrous fling with debunked supply-side economics traces to ALEC, the American Legislative Exchange Council. If you’ve forgotten, ALEC is a secretive, corporate-funded conservative legislation mill. As Ed Pilkington of the Guardian describes it,
ALEC is sort of almost a dating service between politicians at the state level, local elected politicians, and many of America’s biggest companies. It brings them together much as a dating service would do. It sits them in rooms behind closed doors where three times a year they come together to think about what should be the next wave of state-based legislation and they have presentations from the companies that say what they would like to see done legislatively in states right across America. Then they have a vote and the legislators begin. Hundreds of state legislators across America belong to ALEC and come to these meetings.
And yes, many members of the Alaska House and Senate are participants in ALEC.
All of which takes us to SB 21. It’s more of the long-debunked, failed and corrupt voodoo economic theories that are supply-side economics. Lower the taxes, SB 21 says, and more oil and more revenue will roll in. But that’s just supply-side economics recast in a crude oil environment. Because there is no link between production of more oil and reduced taxes, the only thing we can be certain of is that BP, Conoco-Phillips and Exxon will all pay lower taxes to the State of Alaska. A bigger obscene profit for shareholders, who, bylaw, are the only ones Big Oil really cares about.
And yes, all three are sponsors of ALEC.
And who do you think is paying for the “Vote No on One” campaign, the effort to defeat the referendum on SB 21? Through the last-filed disclosures:
BP Exploration (Alaska) Inc. $3,268,780.55
Exxon Mobil Corporation $3,251,110.00
ConocoPhillips Alaska $2,229,082.32
These are overwhelmingly the largest contributions to the campaign against the referendum. It’s worth almost $9 million in political contributions to Big Oil to keep SB 21 and its unconscionable tax cuts on the books. Not one of those companies had pledged to actually put more oil in the pipeline. Not one has pledged to invest in exploration for more oil, on penalty of paying back the money that would have gone to taxes. There is no evidence, absolutely none, that SB 21 will do anything but cost Alaskans part of a nonrenewable resource.
But to quote Krugman again, “[F]aith in tax-cut magic isn’t about evidence; it’s about finding reasons to give powerful interests what they want.” Big Oil wanted a tax cut. The Governor’s and the ALEC-influenced legislators’ crude oil supply-side fantasies are the excuse. We don’t have to buy the t-shirt or the argument. We don’t have to fall for another installment of voodoo economics.